
[Federal Register Volume 80, Number 15 (Friday, January 23, 2015)]
[Notices]
[Pages 3687-3689]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01108]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74088; File No. SR-NYSEArca-2014-117]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To Remove the Exchange's Quote Mitigation Plan as Provided 
by Commentary .03 to Exchange Rule 6.86

January 16, 2015.

I. Introduction

    On October 2, 2014, NYSE Arca, Inc., (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to remove the Exchange's quote mitigation plan as 
provided by Commentary .03 to NYSE Arca Rule 6.86. The proposed rule 
change was published for comment in the Federal Register on October 21, 
2014.\3\ On December 2, 2014, pursuant to Section 19(b)(2) of the 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On January 8, 2015, the Exchange submitted a 
letter in further support of the proposal.\6\ The Commission received 
no comments on the proposal. This order institutes proceedings under 
Section 19(b)(2)(B) of the Act \7\ to determine whether to approve or 
disapprove the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 73362 (October 15, 
2014), 79 FR 62983 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 73720, 79 FR 72747 
(December 8, 2014). The Commission designated January 19, 2014, as 
the date by which it should approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.
    \6\ See Letter from Elizabeth King, Secretary & General Counsel, 
Exchange, to Kevin O'Neill, Deputy Secretary, Commission, dated 
January 8, 2015 (``NYSE Arca Letter'') available at http://www.sec.gov/comments/sr-nysearca-2014-117/nysearca2014117.shtml.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

    In 2007, the Exchange adopted a quote mitigation plan in connection 
with the Penny Pilot Program.\8\ According to the Exchange, the quote 
mitigation plan was designed to reduce the number of quotation messages 
sent by the Exchange to the Options Price Reporting Authority 
(``OPRA'') by only submitting quote messages for ``active'' series.\9\ 
The Exchange defines active series under the quote mitigation plan in 
Commentary .03 to Exchange Rule 6.86 as: (i) Series that have traded on 
any options exchange in the previous 14 calendar days; or (ii) series 
that are solely listed on the Exchange; or (iii) series that have been 
trading ten days or less, or; (iv) series for which the Exchange has 
received an order.\10\ In addition, under the Exchange's quote 
mitigation plan, the Exchange may define a series as active on an 
intraday basis if: (i) The series trades at any options exchange; (ii) 
the Exchange receives an order in the series; or (iii) the Exchange 
receives a request for quote from a customer in that series.\11\
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    \8\ See Securities and Exchange Release No. 55156 (January 23, 
2007), 72 FR 4759 (February 1, 2007) (Order Granting Approval of SR-
NYSEArca-2006-73) (``Quote Mitigation Approval Order''). The Penny 
Pilot Program permitted certain options classes to be quoted in 
pennies. See id.
    \9\ See Notice, supra note 3, at 62983.
    \10\ See Exchange Rule 6.86, Commentary .03, and Notice, supra 
note 3, at 62983.
    \11\ See id.
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    The Exchange proposes to remove its quote mitigation plan from its 
rules by deleting Commentary .03 to Exchange Rule 6.86.\12\ The 
Exchange believes that its quote mitigation plan is no longer necessary 
primarily for three reasons. First, the Exchange states that its

[[Page 3688]]

incorporation of select provisions of the Options Listing Procedures 
Plan (``OLPP'') \13\ in Exchange Rule 6.4A serves to reduce the 
potential for excess quoting because the OLPP limits the number of 
options series eligible to be listed, which, according to the Exchange, 
reduces the number of options series a market maker would be obligated 
to quote.\14\ Second, the Exchange states its view that Exchange Rule 
6.37B Commentary .01, which removes certain options series from market 
makers' continuous quoting obligations, reduces the number of quote 
message traffic that the Exchange sends to OPRA.\15\ The Exchange 
states that reliance on the OLPP, via Exchange Rule 6.4A, and the 
refined market maker quoting obligations, pursuant to Commentary .01 to 
Exchange Rule 6.37B, is sufficient as a quote mitigation plan.\16\ 
Third, the Exchange states that both its systems capacity and OPRA's 
systems capacity are more than sufficient to accommodate any additional 
increase in quote traffic that might be sent to OPRA as a result of the 
deletion of the quote mitigation strategy.\17\ The Exchange represents 
that it continually assesses its capacity needs and ensures that the 
capacity that it requests from OPRA is sufficient and compliant with 
the requirements established in the OPRA Capacity Guidelines.\18\
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    \12\ In addition, the Exchange proposes to amend paragraphs 
(b)(1) and (b)(2) of Exchange Rule 6.86 to delete references to the 
``Quote Mitigation Plan,'' which refer to the quote mitigation plan 
set forth in Commentary .03 to Exchange Rule 6.86. See Notice, supra 
note 3, at 62984.
    \13\ See Amendment to Plan for the Purpose of Developing and 
Implementing Procedures Designed to Facilitate the Listing and 
Trading of Standardized Options Submitted Pursuant to Section 
11A(a)(3)(B) of the Securities Exchange Act available at http://www.theocc.com/clearing/industry-services/olpp.jsp (providing for 
the most current OLPP). See also Securities and Exchange Release No. 
44521 (July 6, 2001), 66 FR 36809 (July 13, 2001) (order approving 
the OLPP).
    \14\ See Notice, supra note 3, at 62984. See also Securities and 
Exchange Release No. 61977 (April 23, 2010), 75 FR 22884 (April 30, 
2010) (in which the Exchange adopted select provisions of the OLPP 
into Exchange Rule 6.4A).
    \15\ Commentary .01 to Exchange Rule 6.37B provides that 
Exchange market makers continuous quoting obligations do not apply 
``to adjusted option series, and series with a time to expiration of 
nine months or greater, for options on equities and Exchange Traded 
Fund Shares, and series with a time to expiration of twelve months 
or greater for Index options.'' See also Notice, supra note 3, at 
62984.
    \16\ See id. The Exchange states its view that limiting the 
number of options series listed on the Exchange is preferable to 
suppressing the quotes of inactive options series, as required under 
current Exchange Rule 6.86, because all quotes sent by Exchange 
market makers are actionable even if not displayed. See id.
    \17\ See Notice, supra note 3, at 62984.
    \18\ See id.
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    The Exchange represents that it has in place certain measures that 
the Exchange believes serve as additional safeguards against excessive 
quoting.\19\ According to the Exchange, these safeguards include 
monitoring and alerting market makers disseminating an unusual number 
of quotes, a business plan designed to ensure that new listings are 
actively traded,\20\ and a ratio threshold fee designed to encourage 
the efficient use of orders.\21\
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    \19\ See id.
    \20\ See id. at n.13 (citing to NYSE Arca Options Listing Policy 
Statement, available at, http://www.nyse.com/pdfs/TraderNoticeArcaLOPSChanges092713.pdf).
    \21\ See id. at n.14 (citing to NYSE Arca Options Fee Schedule, 
available at, https://www.theice.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf).
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    The Exchange proposes to announce the implementation date of the 
proposed rule change by Trader Update and publish such announcement no 
later than 60 days following the effective date of this proposal.\22\
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    \22\ See id. at 62984.
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III. Proceedings to Determine Whether To Approve or Disapprove SR-
NYSEArca-2014-117 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \23\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described in greater detail below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change.
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    \23\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\24\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to the consistency 
of the proposed rule change, as supplemented by the NYSE Arca 
Letter,\25\ with Section 6(b)(5) of the Act, which require that the 
rules of a national securities exchange be designed, among other 
things, to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest; and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.\26\
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    \24\ Id. Section 19(b)(2)(B) of the Exchange Act also provides 
that proceedings to determine whether to disapprove a proposed rule 
change must be concluded within 180 days of the date of publication 
of notice of the filing of the proposed rule change. See id. The 
time for conclusion of the proceedings may be extended for up to 60 
days if the Commission finds good cause for such extension and 
publishes its reasons for so finding. See id.
    \25\ See NYSE Arca Letter, supra note 6.
    \26\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposed rule change. Although there do not appear to be any 
issues relevant to approval or disapproval which would be facilitated 
by an oral presentation of views, data, and arguments, the Commission 
will consider, pursuant to Rule 19b-4, any request for an opportunity 
to make an oral presentation.\27\ Interested persons are invited to 
submit written data, views, and arguments regarding whether the 
proposal should be approved or disapproved by February 13, 2015. Any 
person who wishes to file a rebuttal to any other person's submission 
must file that rebuttal by February 27, 2015.
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    \27\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    The Commission invites the written views of interested persons 
concerning whether the proposal is consistent with Section 6(b)(5) \28\ 
or any other provision of the Act, or the rules and regulations 
thereunder. The Commission asks that commenters address the sufficiency 
and merit of the Exchange's statements in support of the proposed rule 
change, in addition to any other comments they may wish to submit about 
the proposed rule change. In particular, the Commission seeks comment 
on the following:
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    \28\ Id.
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    1. As described above, the Exchange adopted its quote mitigation 
plan as provided in Commentary .03 to Exchange Rule 6.86 in connection 
with its adoption of the Penny Pilot Program, which permits quoting of 
certain options series in certain increments.\29\ The Commission has 
previously noted

[[Page 3689]]

that the Penny Pilot Program has contributed to an increase in 
quotation message traffic from the options markets.\30\ In approving 
the extension and expansion of the Penny Pilot Program in 2009, the 
Commission relied, in part, on the Exchange's representation that it 
would continue to use quote mitigation strategies that would continue 
to mitigate quotation traffic sent to OPRA.\31\
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    \29\ See supra note 8 and accompanying text.
    \30\ See Securities and Exchange Release No. 60711 (September 
23, 2009), 74 FR 49419, 49422 (September 28, 2009) (Order Granting 
Partial Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment Nos. 1 and 3 thereto, Amending NYSE Arca Rule 6.72 and 
Expanding the Penny Pilot Program).
    \31\ See id. The Commission stated: ``While the Commission 
anticipates that NYSE Arca's proposed expansion of the Pilot Program 
will contribute to further increases in quotation message traffic, 
the Commission believes that NYSE Arca's proposal is sufficiently 
limited such that it is unlikely to increase quotation message 
traffic beyond the capacity of market participants' systems and 
disrupt the timely receipt of quote information. NYSE Arca has 
proposed to roll out the additional 300 classes over time, in groups 
of 75 classes each quarter beginning on October 26, 2009. The 
Commission further notes that a June 2, 2009 sustained message 
traffic peak of 852,350 messages per second reported by OPRA is 
still well below OPRA's current messages per second capacity limit 
of 2,050,000. Moreover, NYSE Arca has adopted and will continue to 
utilize quote mitigation strategies that should continue to mitigate 
the expected increase in quotation traffic.'' Id.
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    As noted above, the Exchange believes that its quote mitigation 
strategy is no longer necessary because: (1) The Exchange has 
incorporated select provisions of the OLPP in Exchange Rule 6.4A, which 
the Exchange believes limits the number of series eligible to be 
listed; (2) current Exchange Rule 6.37B Commentary .01 removes certain 
options series from market makers' continuous quoting obligations, 
which the Exchange believes reduces the number of quote messages that 
the Exchange sends to OPRA; and (3) both the Exchange's systems 
capacity and OPRA's systems capacity are more than sufficient to 
accommodate any additional increase in quote traffic that might be sent 
to OPRA as a result of the deletion of the quote mitigation 
strategy.\32\ Do commenters believe that reliance on the Exchange's 
current rules and the existing systems capacity of the Exchange and 
OPRA are sufficient or insufficient means to mitigate quote message 
traffic from the Exchange to OPRA? Please explain.
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    \32\ See supra notes 13-18 and accompanying text.
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    2. What are commenters' views on the impact, if any, that might 
result from the Exchange's proposal to remove its current quote 
mitigation plan as provided in Commentary .03 to Exchange Rule 6.86? 
For example, what are commenters' views on the impact the Exchange's 
proposal would have, if any, on OPRA's system capacity? Please explain. 
Or, what are commenters' views on the impact the Exchange's proposal 
would have on market participants using OPRA and/or the Exchange's 
quotation message feeds? Please explain.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2014-117 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2014-117. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2014-117 and should 
be submitted on or before February 13, 2015. Rebuttal comments should 
be submitted by February 27, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(57).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-01108 Filed 1-22-15; 8:45 am]
BILLING CODE 8011-01-P


